A D M INISTR ATIVE LAW UP DAT E
SUBSTANTIAL REHABILITATION: STILL A WAY OUT
OF RENT REGULATION
By Alexa Englander
In the current rent
regulatory environment,
where
DHCR
has
chipped away at most
landlord
protections
beyond recognition, there are few
mechanisms for deregulation that remain
largely intact.
However, the provision of the Rent
Stabilization Code (“RSC”) that provides
for exemption from Rent Stabilization
when a building has been “substantially
rehabilitated,” as defined under RSC
§ 2520.11(e) and DHCR Operational
Bulletin 95-2, still remains available to
owners.
In order to be eligible for this exemption,
a building must have been completed or
“substantially rehabilitated as family units
on or after January 1, 1974.” A “substantial
rehabilitation” requires that 75% or more
of “building-wide and individual housing
accommodation systems must have been
replaced.” Lastly, “the rehabilitation must
have been commenced in a building
that was in a substandard deteriorated
condition.” If the building was vacant at
the time the work was performed, then it
is presumed to have been in substandard
condition.
The relevant DHCR Operational Bulletin
cites seventeen (17) “building-wide and
individual
housing
accommodation
systems” which must be replaced, including,
inter alia, plumbing, heating, gas supply,
electrical wiring, interior and exterior
surfaces, kitchens and bathrooms, as well
as intercom and elevator replacement. In
buildings that do not contain all seventeen
(17) of the systems listed in the Operational
Bulletin, the owner need only replace 75%
of the systems pre-existing in the building in
order to be eligible for the exemption. (For
example, in a building that did not have
an elevator, the owner would only have to
replace 75% of the remaining number of
systems.)
In a recent proceeding before DHCR, a
landlord, represented by Kara Rakowski and
Alexa Englander of BBWG’s Administrative
Law Department, obtained an order from
DHCR finding that his building had been
substantially rehabilitated, and is therefore
deregulated.
The landlord had purchased the building
in 1981, at a time when a Department
of Health Vacate Order was in effect.
Over the next few years, the landlord
substantially rehabilitated the building and
obtained a new Certificate of Occupancy
in 1987. Since 1987, the landlord treated
the building as deregulated in reliance on
the substantial rehabilitation exemption.
and receipts from large-scale purveyors
of appliances and fixtures, as well as
local hardware stores. BBWG was able
to parse through the documentation and
present it to DHCR in such a manner
as to demonstrate that the building had
been substantially rehabilitated. BBWG
also worked with the landlord’s architect
to rebut the tenant’s architect’s opinion
that the building was not substantially
rehabilitated over twenty (20) years prior.
Less than one year after retaining BBWG,
DHCR issued an Order determining
that the building was exempt from rent
stabilization by virtue of the substantial
rehabilitation, thereby finding that the
building is deregulated, and eliminating
the threat of significant overcharge liability
and susceptibility to additional tenant
complaints.
The landlord was represented in this matter
by Kara I. Rakowski ([email protected])
and Alexa Englander ([email protected])
of BBWG’s Administrative Law Department.
The landlord initially filed a substantial
rehabilitation application with DHCR
on his own, at DHCR’s instruction, in
response to a tenant’s claims of a rent
overcharge and the landlord’s failure
to renew his lease, filed in 2009 and
2010, respectively. In order to establish
entitlement to the exemption in its 2010
application, the landlord had to prove that
he had satisfied the requirements of RSC
2520.11(e) and OB 95-2, over twenty (20)
years after the substantial rehabilitation
was completed. After DHCR sat on his
application for nearly three (3) years, the
landlord retained BBWG to represent him
in the proceeding.
Fortunately, the landlord had maintained
volumes of records, including invoices
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